The Crown of Aragon was widespread in the area that is now southernwestern France, but which at that time was under the control of vassal local princes, such as the Counts of Toulouse. The Cathars or Albingenses rejected the authority and the teachings of the Catholic Church. Innocent called upon Louis VIII of France to suppress the Albigenses. Under the leadership of Simon of Montfort a campaign was launched. The Albigensian Crusade, which led to the slaughter of approximately 20,000 men, women and children, Cathar and Catholic alike, essentially destroyed the previously flourishing civilization of Occitania and brought the region firmly under the control of the King of France, and the Capetian dynasty from the north of France.

Peter returned from Las Navas in autumn 1212 to find that Simon de Montfort had conquered Toulouse, exiling Count Raymond VI of Toulouse, who was Peter's brother-in-law and vassal.[clarification needed] Peter crossed the Pyrenees and arrived at Muret in September 1213 to confront Montfort's army. He was accompanied by Raymond of Toulouse, who tried to persuade Peter to avoid battle and instead starve out Montfort's forces. This suggestion was rejected.

The Battle of Muret began on September 12, 1213. The Aragonese forces were disorganized and disintegrated under the assault of Montfort's squadrons. Peter himself was caught in the thick of fighting, and died as a result of a foolhardy act of bravado. He was thrown to the ground and killed. The Aragonese forces broke in panic when their king was slain and Montfort's crusaders won a crushing victory.

The nobility of Toulouse, vassals of the Crown of Aragon, were defeated. The conflict culminated in the Treaty of Meaux-Paris in 1229, in which the integration of the Occitan territory into the French crown was agreed upon.

Upon Peter's death, the kingdom passed to his only son by Marie of Montpellier, the future James the Conqueror.